A CASE STUDY ON REGAL CARNATION HOTEL

List relevant qualitative data: Evidence related to or based on the quality or character of something.

List relevant quantitative data: Evidence related to or based on the amount or number of something.

INCLUDE GRAPH TABLE OR FIGURES TO CLARIFY THE FINDINGS.

THE ATTACHMENT IS THE CASE STUDY

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908M70

THE REGAL CARNATION HOTEL, GUAM

Jim Kayalar wrote this case solely to provide material for class discussion. The author does not intend to illustrate either effective or

ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to
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Steve McKenzie, a management consultant from New Jersey, looked out the window of a United Airlines

Boeing 747 at the fading shoreline of the island of Guam.

Their 2007 Easter vacation now over, McKenzie and his wife were returning home with somewhat fond

memories — “Fond memories of the island,” McKenzie thought. The hotel they had stayed in was a

different story. “Think overpromise and under-deliver,” he grumbled to himself.

In retrospect, as McKenzie thought more and more about his hotel stay, he contemplated writing to the

hotel to share his insights with management. But would writing to them be of any use and was there

anything new he could say that they didn‟t already know?

Guam Background

The island of Guam, an unincorporated territory of the United States, had a population of 175,000 and lay

in the Philippine Sea. The island of Guam was three times the size of Washington, D.C., and boasted a

turbulent history.
1
The island was first put on the map by Portuguese adventurer Magellan, who was sailing

under the Spanish flag, in 1521.
2
It was ruled by the Spanish until 1898 when it was ceded to the United

States. Japan ruled the island between 1941 and 1944 during the Second World War and Guam was since

then an organized territory of the United States.

The United States had two permanent bases in Guam that benefited the local economy:

1. Commander Naval Region Marianas Main Base
2. Andersen Air Force Base

1
www.cia.gov/library/publications/the-world-factbook/geos/gq.htm, accessed August 8, 2008.

2
http://www.justice.gov.gu/SuperiorHistory/hist_02.htm, accessed August 8, 2008.

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Page 2 9B08M070

The American military presence on Guam was a serious economic factor for Guam‟s economy. Tourism

was the other big revenue generator and provided 60 per cent of the island‟s gross revenue and 35 per cent

of total jobs on Guam.
3

Tourism Industry

Guam‟s tourism industry started developing in earnest after 1962 when President Kennedy lifted travel

restrictions to the island. 1967 was an important milestone; it was when the first Pan Am World Airways

jet landed on Guam, carrying 109 Japanese visitors.
4

After a phase of rapid growth, the tourism industry was by 2007 in the maturity stage. Numerous new

tourism destinations had entered the market and were successfully vying to bring potential customers to

their countries through elaborate promotional campaigns. Guam‟s recipe for success based on sea, sand,

sun and duty-free shopping had been matched and surpassed by competitors with additional cultural

offerings, events and attractions. Occupancy rates and hotel prices had fallen from their all-time high in the

1990s (see Exhibits 1 to 6).

Guam‟s geographic position made it susceptible to typhoon damage and its unique position as a U.S.

military checkpoint made it more sensitive to being affected by negative macro economic and political

developments, such as the post-9/11 War on Terror, the 2003 invasion of Iraq and outbreaks like the SARS

scare.

Guam Hotel Inventory

There were approximately 30 to 35 hotels in the one-star to five-star range in Guam, with branded hotels

like the Sheraton, Hilton, Marriott, Hyatt Regency and Westin present in the market (see Exhibit 7). One

million plus tourists visited Guam annually.

Average hotel occupancy rates on the island hovered around the 60 to 65 per cent mark, with

beachfront

hotels outperforming the rest and realizing 80 to 85 per cent occupancy.

The majority of hotel properties on Guam were in the four- to five-star range. The three-star hotel market

was differentiated based on the availability of a beachfront. Guam also had numerous one-star hotels and a

single two-star limited service hotel, which had opened in 2002.

Guam Visitor Profile

Approximately 80 per cent of tourists visiting Guam originated from Japan. Guam was a 3.5- to 4-hour

flight from most Japanese cities. Ten per cent of visitors came from Korea and the rest came from nearby

countries like China, Taiwan and Hong Kong. The average Japanese tourist stayed on the island for three

to four days and spent approximately $585 during their stay. It was thought that for most it was their first

overseas trip and the first time they set foot on U.S. soil. Most of them would not return. Repeat Japanese

visitors made up approximately a third of total arrivals.

3
http://visitguam.org/members/?pg=ar, accessed August 8, 2008.

4
http://visitguam.org/members/?pg=ar, accessed August 8, 2008.

Page 3 9B08M070

The average Korean tourist spent an average of $506 during their stay. Eighty per cent would not return

back to Guam for a repeat visit.
5

A small number of Americans tourists visited the island every year, mostly to sample the Second World

War heritage. There was also a steady inflow of Americans on official U.S. government business.

Weather

The weather on Guam was very pleasant, with average temperatures ranging from 80 to 90 degrees

Fahrenheit throughout the year, which made it an ideal location for tourists who wanted to escape the cold

of the winter months.

Other

Seaside resort hotels with their own beachfront comprised the most-sought category of hotel in Guam.

Market research showed that duty-free shopping and sampling “Americana” were the other reasons for

visiting Guam. Guam also boasted the largest Kmart in the world.

Most Guam hotels advertised special rest and relaxation room rates and packages for U.S. military

personnel. Most of the hotels were based on Hotel Drive, a two-mile-long stretch of road in the capital,

Hagatna.

Hotel Drive boasted the best beaches in Hagatna and offered a fine choice of shopping, dining and night

life. As Hagatna had been built to capacity as regards beachfronts, some hotels had chosen to locate outside

the capital.

THE REGAL CARNATION HOTEL BACKGROUND

The Regal Carnation Hotel was a relatively new three-star property with 150 standard rooms and was

situated at a distance of 300 feet from the seafront, along a major road that separated it from other hotels

that were based next to the ocean. The Regal Carnation was located about four to five miles from the city

center.

The Regal Carnation was built after the first wave of hotel-building in Guam in the 1980s when it became

apparent that the tourism industry in Guam was a success and was there to stay as a result of continued

strong demand for hotel rooms.

“The Regal Carnation is a „me-too‟ investor trying to piggy back on the success of hotels with their own

beachfront,” McKenzie thought. With no direct access to the sea, most Regal Carnation guests made use of

the beach facilities of the other hotels for a certain fee or used the small stretches of unkempt public beach

between the adjacent hotels.

5
http://visitguam.org/members/?pg=ar, accessed August 8, 2008.

Page 4 9B08M070

REGAL CARNATION HOTEL PRODUCT REVIEW

Hotel Research

McKenzie and his wife found the hotel on the Internet. Internet reviews of the Regal Carnation were

mixed. Some people said that they chose to cancel their reservation immediately upon arrival and move to

a better hotel. Some former guests suggested that they would choose a better hotel (and one with its own

beachfront) if they returned to Guam.

Reservation

McKenzie and his wife booked their stay through the hotel website. The hotel was competitively priced, as

comparative hotels with beachfronts or city center locations cost 25 to 30 per cent more. The room and

breakfast package cost them $100/night.

However, price competitiveness came at a price and it took them three weeks to confirm price and

availability at the Regal Carnation. The hotel insisted on 100 per cent prepayment for the duration of their

stay, with no refunds if they checked out early.

Website

The hotel website was a flashy website that immediately gave you a feeling of expensive, sophisticated

chic. McKenzie and his wife were excited at the prospect of staying at a nice, affordable hotel that was

relatively close to the city center.

Hotel Transfer

McKenzie and his wife‟s promised complimentary airport pick-up at Hagatna airport was forgotten and it

was by pure coincidence that they ran into the Regal Carnation front desk manager at the airport, a middle-

aged Filipino man, who was at the airport to pick up another guest arriving on a different flight. They had

to wait at the airport for an additional 45 minutes after a five-hour flight before the other guest arrived.

McKenzie noticed that the front desk manager was using his own car rather than a company car. “Was that

a sign of commitment to serving the guest or a bad omen for the rest of our stay?” McKenzie thought.

First Impressions

Arriving at the hotel, McKenzie and his wife saw that the lobby was furnished with inexpensive, clunky

furniture of different colors, which gave the lobby a “tacky” feel. The lobby had looked really different on

the website.

Check-In

The simple check-in process took 25 minutes, not because Guam was on island time, nor because there

was a long line of eager tourists trying to check into the hotel (in fact, there were 2.73 employees per guest

at the front desk at the time of McKenzie and his wife‟s check-in) but because of the front desk staff,

which was composed of young Japanese girls who apparently were the new front desk interns at the Regal

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Carnation for the season. The interns had a very limited, basic knowledge of English, which made

communicating with them a bit tedious. Unfortunately, neither McKenzie nor his wife could muster more

than a “good morning” in Japanese. It was obvious that the interns had not been trained properly and had

not had the time to learn the check-in process. The interns were more than a little excited to come across

non-Japanese speakers and the check-in process stalled. The front desk manager who happened to be

passing by intervened and got them checked in.

Room

The room was something other than what was propagated on the website. The elegant, spacious, expansive

hotel room was a virtual mirage. Although it was a non-smoking room, it had seen many a smoker in its

time. The carpet was stained and looked worn and torn. The air conditioner only worked at times.

McKenzie suspected that the hotel management flipped the switch at times to conserve energy and cut

costs.

There were no luggage racks available in the room and when McKenzie and his wife asked for a luggage

rack from the front desk, they had to describe what a luggage rack looked like and what purpose it served.

The front desk promised to send one up immediately. It never showed.

The bed was quite soft and hollowed out on the side next to the phone and did not provide support. The

pillows were as flat as pancakes. Multiple requests for extra pillows and assurances by the front desk that

they were being sent up finally led to the admission that the hotel did not have extra pillows available.

They asked for extra towels to use as a pillow substitute instead. A hotel employee, who by her looks was

the unhappiest person in the world, delivered the extra towels without a word. “It isn‟t as if the hotel is

fully booked. There are numerous empty rooms on our floor alone. How difficult could it be for

housekeeping to get pillows from a vacant room to make a guest happy?” McKenzie thought.

Bathroom

Strange noises emanated from McKenzie and his wife‟s bathroom and other adjacent bathrooms

throughout their stay. One afternoon, there was a strong smell followed by the sound of water, which

turned out to be the toilet overflowing. McKenzie had read somewhere that some hotels dumped their

sewage directly into the ocean and that sometimes when the currents came in strong, there was a back draft

and the toilets overflowed.

Bathroom-stocking and Room-cleaning

Getting the room restocked with fresh towels, shampoo, soap and especially drinking water (average

temperatures ran in the high 90s) was a part of the daily grind with the front desk.

After the first night McKenzie and his wife realized that the bed sheeting had not been changed. The hotel

required that you place a “notice to change bed linen today” flyer on a pillow, which was tucked away in a

shelf in the bathroom, if you wanted to have your bed linen changed that day. McKenzie thought,

“Normally you have the option of not having your bed sheets changed by housekeeping every day.”

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Breakfast Room

The only other facility McKenzie and his wife used was the breakfast room, which reminded McKenzie of

a self-service university canteen. The breakfast room was situated right next to the front desk. They

planned on a late breakfast after their arduous journey and attempted to have breakfast at 9.30 a.m., well

before the closing hour at 10 a.m., only to find the open buffet void of most items. Unfortunately, there

was no one to replenish the breakfast offering. Over the next couple of days, they noticed that “the early

bird” got the lot here unless the number of Japanese guests staying at the hotel increased, in which case

both the quality and quantity of the breakfast offering improved.

Public Areas

Public areas such as the upper floor hallways were dirty. There was a thick layer of dust on the furniture

next to the elevator.

Housekeeping

When asked for something, housekeeping staff members defaulted to the “no speak English” trick. At

other times, you heard them speak plausible English in the hallways. McKenzie noticed that housekeeping

staff was made up mostly of Filipina workers who did not bother to greet guests even if they were

addressed by guests first. At times it seemed as if there was a “cold war” between housekeeping staff

members and guests.

McKenzie wondered how the polite Japanese front desk interns got along with the Filipina housekeepers.

He compared the unhappy demeanor and hostile attitude of staff members towards guests to other

situations he had experienced in other industries. Staff members acted this way if they felt unappreciated

and underpaid.

Food and Beverage Offering

The hotel website had advertised the presence of numerous fine food restaurants. The hotel outsourced the

food and beverage offering and rented out prime commercial space. Unfortunately, two of the advertised

restaurants were closed.

The available choices were a Japanese restaurant and a well-known U.S. mainland-based Italian restaurant

chain. Both looked half-empty at most times. The patrons were mostly younger Japanese tourists who

seemed to want to try out the novelty of an Italian American restaurant or enjoy their home cooking away

from home in the Japanese restaurant. Prices at both restaurants were above normal U.S. prices and

Internet reviews by customers from the U.S. mainland described medium-quality food and slow service.

Since the hotel only had the room and breakfast offering, McKenzie and his wife ate out or ordered take-

out from nearby restaurants.

Page 7 9B08M070

Car Rental and Tour Desk

A car rental booth was present at the hotel entrance and was run by a local company who rented

commercial space from the hotel. McKenzie and his wife initially intended to rent a car from the in-house

service provider but took their business to another company in the neighborhood as a result of a limited

selection of rental vehicles and high prices. The hotel did not have an in-house tour service provider.

In-House Shopping

There were large commercial space vacancies in the hotel complex. McKenzie guessed that only half the

commercial space was occupied. The hotel shops offered similar products at higher prices when compared

to shops in downtown Hagatna. A small strip mall next to the hotel was where most hotel guests shopped

for convenience items and food.

Pool Area

After a long and hot day, McKenzie and his wife decided to use the hotel pool. The pool had looked much

larger and more sophisticated on the hotel website. There were a number of deck chairs but unfortunately

no sun umbrellas to protect against the blazing sun. The pool was empty throughout their stay as nobody

ventured to use it, probably because it was a little dirty, cloudy and smelled of excessive chlorine.

Gym

The gym was decent-sized. It contained the latest fitness equipment and gadgets, which would have made

the most discerning fitness patron happy. Unfortunately, it stood empty as no one used it.

In-Room Entertainment — TV

TV consisted of two local Guam channels, 24-hour delayed U.S. mainland cable TV and lots of Japanese

and Korean channels. During the second day of McKenzie and his wife‟s stay, all TV programs from the

U.S. mainland had ceased and were not reinstated during the duration of their stay. The front desk assured

them that they would fix the problem.

Meeting Rooms

The hotel had several large meeting rooms with the latest equipment. McKenzie guessed that it had been

quite some time since the last meetings were held there by the unkempt state of the rooms and the

accumulation of dirt and grime, which indicated disuse. “Funny that there was no mention of meetings and

conventions on the hotel website,” McKenzie thought.

Management

Every morning at the same time, McKenzie saw an elderly American man by the front desk, whom he

presumed was the hotel manager. McKenzie also frequently came across the front desk manager, who

seemed to be ever-present at the front desk of the hotel, regardless of the time of day or night. McKenzie

Page 8 9B08M070

saw him hauling boxes, carrying suitcases and chauffeuring guests to-and-from the hotel. McKenzie

guessed that the hotel employed the absolute minimum number of employees to run the business.

Towards the end of McKenzie and his wife‟s stay, McKenzie met the hotel manager, Sam Felsen, a native

of North Carolina who had been on the island for the last seven years, and learnt that the hotel realized 80

per cent of bookings through its website. Felsen was close to retirement age and looked forward to

returning to North Carolina. Felsen told McKenzie that the hotel owners were a group of investors from

Hawaii who spent six months of the year in Guam and the remainder in Hawaii overseeing their other hotel

investments.

Their vacation over, McKenzie thought about similar situations he had come across where information was

not readily available. He had come across a useful approach for assessing businesses when information

available was limited, as depicted below in Exhibit 8, and wondered if the approach could be useful when

applied to the Regal Carnation Hotel, Guam.

Page 9 9B08M070

Exhibit 1

GUAM TOURISM DATA 1963-2007

YEAR ROOM ROOM VISITORS OCCUPANCY
INVENTORY RATE RATE
1963 50 N.A N.A N.A

1964 75* N.A N.A N.A

1965 150* N.A N.A N.A

1966 175* N.A 1,500* N.A

1967 267 N.A 6,600* N.A

1968 520 N.A 18,000* N.A

1969 700* N.A 58,265* N.A

1970 1160* N.A 73,723* N.A

1971 1500* N.A 119,124 N.A

1972 1,890 N.A 185,399 N.A

1973 2,250 N.A 241,146 N.A

1974 2,100 N.A 260,568 N.A

1975 2,000 N.A 239,665 N.A

1976 2,350 N.A 205,096 N.A

1977 2,080 N.A 245,776 N.A

1978 2,080 N.A 238,829 N.A

1979 2,336 N.A 272,690 N.A

1980 2,345 N.A 300,763 N.A

1981 2,345 N.A 321,766 N.A

1982 2,416 N.A 326,389 N.A

1983 2,819 N.A 351,087 N.A

1984 2,964 N.A 368,620 N.A

1985 2,991 N.A 377,941 N.A

1986 2,905 N.A 407,061 N.A

1987 3,864 N.A 483,958 N.A

1988 3,939 72 585,799 84

1989 4,133 83 668,827 90

1990 4,955 95 780,604 89

1991 5,219 102 737,260 79

1992 5,584 108 876,742 71

1993 6,038 100 784,018 58

1994 6,919 94 1,086,720 63

1995 7,140 99 1,361,830 86

1996 7,298 124 1,372,566 82

1997 8,119 126 1,381,513 76

1998 8,705 114 1,137,026 62

1999 9,290 94 1,161,840 56

2000 10,110 101 1,286,807 63

2001 9,002 102 1,159,071 58

2002 8,915 98 1,058,704 57

2003 8,915 97 909,506 50

2004 8,555 92 1,159,881 58

2005 9,236 106 1,227,587 62

2006 9,113 106 1,211,674 62

2007 9,429 111 1,225,414 65

Source: Guam Visitors Bureau annual reports.

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Exhibit 2

GUAM VISITORS PER YEAR 1966-2007

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006

Year

V
is

it
o

Source: Guam Visitors Bureau annual reports.

Exhibit 3

GUAM PRODUCT LIFE CYCLE

Introductory

Stage

Growth

Stage

Maturity

Stage
Decline Stage

Total

Market

Sales

Time

Source: Guam Visitors Bureau annual reports.

Page 11 9B08M070

Exhibit 4

GUAM OCCUPANCY RATES 1988-2007

84
90 89

58
63

86
82

62
56

63
58 57

58
62 62

100

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Year

O
cc

u
p

an
cy

(
%

)

Source: Guam Visitors Bureau annual reports.

Exhibit 5

GUAM ROOM INVENTORY 1963-2007

2000

4000

6000

8000

10000

12000

1963 1697 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007

Year

Source: Guam Visitors Bureau annual reports.

Page 12 9B08M070

Exhibit 6

GUAM ROOM PRICES 1988-2007

72
83

95
102

108
100

94
99

124126

114

94
101102 98 97

106 106
111

0
20
40
60
80
100

120

140

R
oo

m
P

ri
ce

($
)

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Year

Source: Guam Visitors Bureau annual reports.

Exhibit 7

GUAM HOTELS POSITIONING MAP

Hotel Quality

H
o

te
l
P

ri
c
e

(
$
)

Hotel

Low

High

5µ

Hotels

2 µ

Hotel

4µ

Hotels

3µ

Hotels

1µ

Hotels
3µ
Hotels

Boutique

Hotels

Hotels with no

beachfront
Hotels with no

Beachfront

Hotel with no

beachfront

Source: Guam Visitors Bureau annual reports.
This document is authorized for use only by Merina shrestha (Merinashr@yahoo.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.

Page 13 9B08M070

EXHIBIT 8

METHODOLOGY

Root Causes

Company Strategy

Symptoms

Product Life Cycle

Line of Visibility

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